Chapter 16 - Business-to-Business Marketing

Question 1

What is the fundamental difference between B2B and B2C markets?

Answer 1

Organisational buyers don’t consume the offerings themselves.

Question 2

What are the four characteristics of Business markets?

Answer 2

1. The Nature of demand
2. The buying processes
3. International dimensions
4. Relationships

Question 3

What does the Nature of demand imply?

Answer 3

Demand is ultimately derived from consumers. It is variable since consumers’ preferences and behaviours fluctuate. It is essentially inelastic (in the short/mid term) since suppliers’ increased costs are often absorbed by the company.

Question 4

What is implied by the characteristic Buying processes?

Answer 4

The process typically involves a large number of people (DMU) and go through different buy classes and buy phases. It reflects the associated potentially high financial value, product complexity and risk/uncertainty.

Question 5

What is implied by the International dimensions?

Answer 5

Easier to conduct internationally than B2C, since business need around the world are more similar. Technological development also allows for covering larger geographical areas. Agreements by trading associations makes the process relatively simple.

Question 6

What is implied by the Relationship characteristic?

Answer 6

The interaction between buyers, sellers and other stakeholders is of major significance for success. Interdependence, collaboration and in some cases partnership is considered a core element of B2B marketing. Strong interorganizational relationships=embedded ties.

Question 7

What are the three broad types of B2B organisations?

Answer 7

1. Commercial (distributors, manufacturers, users and retailers)
2. Government
3. Institutional (non-profits, community-based organizations and government-related).

Question 8

What are the three principal business types of goods and services?

Answer 8

• Input goods. Lose their individual identities and become part of the finished item.
• Equipment goods. Necessary for manufacturing and operations to take place.
• Supply goods (MROs). Consumables, that are necessary to keep production processes and the organization running.

Question 9

What are the three key issues of organisational buying?

Answer 9

• What processes do we need to go through?
• Strategy, where purchasing is designed to assist value creation and competitive advantage, and to influence chain activities
• The network of relationships that organizations belong to when purchasing, in that the placement of orders and contracts between organizations can confirm a current trading relationship, initiate new relationships or signal the demise of a relationship

Question 10

What are the underlying points of “ease of doing business” measurements?

Answer 10

integrity, trust, interdependence and communication.

Question 11

What is a DMU?

Answer 11

The people involved in the process of purchasing a range of offerings. Also known as buying centre.

Question 12

Who are the standard members of the DMU?

Answer 12

• Initiators. Start the process by requesting an item for purchase.
• Users. Use the product once it is acquired and evaluate performance.
• Influencers. Often help to establish the technical specifications for the proposed purchase and help to evaluate potential suppliers’ alternative offerings. This can be consultants hired to complete a specific project.
• Deciders/key decision makers. Make the purchasing decision. Are the most difficult to identify since they may not have formal authority to make these decisions, but are yet sufficiently influential internally that their decisions carry the most weight.
• Buyers/purchasing managers. Select suppliers and manage the process where the required offerings are procured. They may not decide which offering is to be purchased, but they influence the framework within which the decision is made. They undertake the process where the offering is purchased once a decision has been made.
• Gatekeepers. Have the potential to control the type and flow of information to the organization and the members of the DMU.

Question 13

What are the three main buying situations for businesses?

Answer 13

• New task. 1st time buying situation, high risk because of little collective experience of offering or suppliers.
• Modified rebuy. Reduced risk when solution has previously been purchased, but not eliminated. Fewer people are involved when only some modifications need to be made.
• Straight rebuy. Routine reorder. Operational solutions or low value offerings. Can reduce cost and direct managerial time to other projects, builds strong relationship. Could however reduce flexibility if seen as exit barrier.

Question 14

What are Buyphases and what are the six phases?

Answer 14

The series of sequential activities through which organisations proceed when making purchasing decisions.

1. Need/Problem recognition
2. Product Specification
3. Supplier and proposition search
4. Evaluation of proposals
5. Supplier selection
6. Evaluation

Question 15

What happens in the buy phase Need/problem recognition?

Answer 15

Identifying a gap between current benefits and benefits the organization would like to have. How to close the gap; outsource or make the offering themselves? For the rest of the process, we assume they make it themselves.

Question 16

What happens in the buy phase Product specification?

Answer 16

Influencers and users determine desired characteristics of solution needed to resolve problem in a purchase order specification. If properly executed, it narrows the supplier search and saves costs.

Question 17

What happens in the buy phase Supplier and Proposition search?

Answer 17

Buyer actively seeks suppliers of the necessary solution. It should match the specification/performance standards and the supplier should meet other organisational requirements (experience, reputation, credit rating). Reduce risk by working with suppliers it knows.

Question 18

What happens in the buy phase Evaluation of proposals?

Answer 18

Proposals are reviewed based on match to purchase order and supplier evaluation. Little time is needed if the organization is already part of the supplier network.

Question 19

What happens in the buy phase Supplier Selection?

Answer 19

The DMU undertakes a supplier analysis and chooses who will supply the solution. Some want to diversify risk and use many suppliers while others use a single-source supplier. Then they can build long term relationships and help each other reach goals, and volume sales discounts can be achieved.

Question 20

What happens in the buy phase Evaluation?

Answer 20

The order is placed from the selected supplier, and is then monitored and evaluated against criteria such as responsiveness, modifications and timing of delivery. It is important that the solution not only meet the specification, but also satisfy the original need.

Question 21

What are some issues that have changed the role of business purchasing?

Answer 21

• Want to build long term relationships with fewer suppliers.
• Customer sophistication. Purchasing is more specialised to not become ineffective in meeting customers’ more sophisticated needs.
• Increasing competition –> lower margins. More focus on internal costs and operations such as creating purchasing policies.
• Digital technology. Can develop interaction in networks and increase cooperation. Social media can be used in many stages of the sales process (increasing in B2B).
• Branding. Underutilized resource in B2B. Is becoming more important with digital marketing.
• Strategic issues. Make-or-buy decisions.

Question 22

What are the six principle purchasing strategies for organisations?

Answer 22

1. The price minimizer purchasing strategy. The buyer actively promotes competition among several potential suppliers to get the lowest priced offering.
2. The bargainer purchasing strategy. The buyer wants to increase operational efficiency through long term collaboration with a selected supplier.
3. The clockwiser purchasing strategy. The goal is strict efficiency, achieved through integration of production-based control systems and IT and coordination between network partners.
4. The adaptor purchasing strategy. Adapting the manufacturing processes between the exchange parties, to fit particular needs.
5. The projector purchasing strategy. Buyers and sellers are development partners. They develop offerings in collaboration, before going back to working independently.
6. The updater purchasing strategy. Based on collaboration in R&D. Collaboration is continuous and the nature of the development is a supply network (more than two parties).

Question 23

What is the Customer Portfolio matrix?

Answer 23

A matrix for a company’s customers, assessed depending on current relationship strength and potential attractiveness. Many want to decrease their portfolio to increase profitability and efficiency.

Question 24

What are the 4 sectors of the customer portfolio matrix?

Answer 24

1. Sector A = must have customers. Close business relationship and attractive business potential. Investment opportunities and resources should be allocated to develop them.
2. Sector B = good-to-have customers. Prospects, highly attractive but current relationship is weak. Allocate resources on a selective basis proportional to the representative value.
3. Sector C = need-to have customers. Strong relationships but weak potential, but important because they provide steady background business that is marginally profitable. Resources should be maintained.
4. Sector D = Do-not-need customers. Little reason to invest in these customers since relationships are weak and they are relatively unattractive. Many of these customers should be released to competitors.